Pfizer Meeting Gives Dissidents Voice, Not Votes [WSJ]
By SCOTT HENSLEY and JOANN S. LUBLIN
April 28, 2006; Page B1
LINCOLN, Neb. -- Dissatisfied shareholders at Pfizer Inc. failed to force changes on the giant drug maker but did manage to lodge a sharp rebuke over the pay packages granted top executives.
As disgruntled investors are turning up in force at company annual meetings this year to demand better corporate governance and, in particular, some restraint in executive pay, the challenge to Pfizer illustrates both signs of progress in their fight, and how much more work remains if they are to get their way.
The principal focus for shareholder ire at the company's annual meeting here was the recent disclosure that Chairman and Chief Executive Henry "Hank" McKinnell could receive a lump-sum retirement payout valued at $83 million as of last Dec. 31. Mr. McKinnell is scheduled to step down in February 2008. As company shareholders entered the meeting at the Cornhusker Marriott here, a single-engine plane circled overhead pulling a banner reading in bright red letters: "Give it back Hank."
Shareholders targeted two directors on Pfizer's compensation committee, withholding more than a fifth of their votes for the directors' re-election. Both directors received a majority of votes, avoiding a recently adopted company bylaw that would have required them to resign. Dana Mead, chairman of the committee, was re-elected to the board with 78.3% of the votes cast, while George Lorch, another member, received 78.7%, according to preliminary tallies announced at the meeting.
Withholding anything more than 20% of votes "has always been the benchmark for significance" on director re-election contests, says Patrick McGurn, an executive vice president of Institutional Shareholder Services, an advisory service that recommended investors withhold support for Messrs. Lorch and Mead. The vote tally indicates Pfizer investors "have concerns about pay for performance," Mr. McGurn said.
Still, even amid widespread complaints about skyrocketing executive pay and poor disclosure, management at most companies remains well insulated from the annual-meeting demands of shareholders. Companies have long endured protests about particular practices that offend groups ranging from unions to animal-rights activists. Few actual changes have resulted. Many shares are held by big financial institutions that are reluctant to challenge management. Many individual investors fail to cast their votes or indicate their preference to the institutions that hold them.
A major force behind the move to overhaul Pfizer's compensation committee vowed to fight on despite the vote. "I'm not even surprised because they pulled out all the big guns they have to uphold the compensation committee," said Frederick Rowe, a Dallas investor.
Mr. Rowe is president of Investors for Director Accountability Foundation, a group whose members include John Bogle, founder of mutual-fund giant Vanguard Group, and investor T. Boone Pickens. Achieving corporate change is difficult, he acknowledged, "but we're going to get the institutions that vote these millions of shares the way management wants them to vote them in the interest of the people who the money actually belongs to." He and his supporters remain convinced, regardless of the explanations offered by the board, that "there is no connection between compensation and performance at Pfizer."
In opening remarks, Mr. McKinnell acknowledged the company's difficulties. When first elected chairman five years ago, he said, he knew "in the middle of this decade, Pfizer would lose patent protection on more medicines in a shorter period of time than any other company in business history." While sharing frustration over Pfizer's stock price, which has fallen 45.7% since he became CEO in 2001, he asked for shareholder support and patience while the New York-based company rebuilds it portfolio of drugs.
In the first statement from the floor, Daniel Pedrotty, an analyst in the AFL-CIO's Office of Investment, challenged Mr. McKinnell's expected pension award as "pay for failure." The compensation-committee chairman, Mr. Mead, responded that the award was accrued over 35 years of service and that the policy for determining future retirement packages would conform to the AFL-CIO's suggestion. Still, Mr. Pedrotty said he believes that Mr. Mckinnell should give back half of his pension based on the company's poor performance since 2001.
An angry individual shareholder from Lincoln complained that his $100,000 investment in Pfizer, the world's largest drug company as measured by sales, over the last five years was now valued less than $50,000. How then, he asked, could the board justify Mr. McKinnell's pay? Mr. Mead said that Mr. McKinnell's pay had been reduced 22% last year and the company's share price declined 11%.
"We try to do the best we can to peg it to what we think is a reasonable level of compensation for this level of responsibility," Mr. Mead said.
A shareholder proposal to separate the jobs of chairman and chief executive drew 38.7% of the votes, down from 41% last year. The outcome was a "bit disappointing, but still indicates that our concerns resonate with a large number of shareholders," said Catherine Rowan, who presented the measure on behalf of the Interfaith Center on Corporate Responsibility in New York.
The Pfizer meeting and a series of similar confrontations planned at annual meetings in coming weeks, however, demonstrates a renewed effort to make change through shareholder votes.
This year, about 400 corporate-governance resolutions have come to a vote or are being considered at annual meetings occurring through June 30. That is up from 383 voted on during the same six-month period last year, according to ISS. An estimated 180 social and environmental shareholder resolutions have been voted on or submitted for meetings through June 30, compared with 169 voted on during the first half of 2005, reports Social Investment Forum, a social-investment trade group in Washington. However, not all of the pending measures will end up on companies' ballots.
Outraged by corporate scandals, job cuts and sky-high executive pay, certain activist investors "are looking at the annual meeting as a forum to get attention," says Carol Bowie, director of the governance research service for ISS, a proxy-advisory firm in Washington. Union pension funds in particular "are leveraging their share ownership to make their points during annual meetings," she adds.
At yesterday's Pfizer meeting, the AFL-CIO arranged for the flying protest along with a picket line of about a dozen people to draw attention to Mr. McKinnell's retirement package and compensation. Noisy activism during annual meetings is on the rise among union members because they're increasingly aware "of the disparity between executive compensation and what they earn," Carin Zelenko, the Teamsters union's director of capital strategies. As shareowners and longtime workers, they feel "they have more at stake in the success of these companies than these executives [who] come and go."
Governance watchers expect similar fireworks by unions, retired employees and social activists at several other major concerns this year. Among the expected targets are. Home Depot Inc., Peabody Energy Corp., Verizon Communications Inc., Hilton Hotels Corp., Halliburton Co. and Ford Motor Co.
Among the shareholder proposals coming up at Home Depot's May 25 meeting is one sponsored by the American Federation of State, County and Municipal Employees' pension fund. The measure, which the union also submitted at four other corporations, would give investors an advisory vote on total compensation and pay policies for the five top executives. Richard Ferlauto, the federation's director of pension and investment policy, says businesses like Pfizer and Home Depot "are high-visibility companies where shareholders feel there hasn't been enough good engagement."
online.wsj.com |
